What made Yahoo Successful? What was

their strategy?

What has led to Yahoo’s problems?

What should Yahoo’s new strategy be?

What people issues must be addressed for

Yahoo to regain success?

SWOTAnalysis II -

Internal Analysis(Strengths & Weaknesses)

The Purpose of Internal Analysis is to Identify Strengths and Weaknesses in the Firm’s

Value Creation Capabilities

• The intended strategy that is derived should rest upon strengths and bolster weaknesses

• We analyze the firm in its competitive context to identify how our particular organization is different from others and how we can use that difference to our advantage

• Labor costs, capital costs, raw materials sourcing are seldom sources of sustained competitive advantage

• Must base strategies on resources that other firms do not have

• Internal structures and processes are often critical (human resource management)

Resources ==>Capabilities==>Core Competencies

• Resources: Inputs to the firm’s production process

• Capabilities: The capacity of a set of resources to integratively perform a task or activity

• Value chain - an analytical method

1. Break the firm into activities

2. Analyze how each activity creates value (lead to economic value)

3. Examine how the value created compares to that of competitors

Purchasing Operations Distribution Marketing Service Overhead

MARGIN

Firm Infrastructure

TechnologyDevelopment

HumanResource

ManagementProcurement

Complete Value Chain

Support Activities

Primary Activities

Core Competencies7

• Form the roots of long-term competitive advantages

• Arise from capabilities and resources

• Help the firm design and produce an ongoing stream of distinctive products or services

• The idea behind core competence is to identify critical skills and keep them inside the firm

• Neither technology nor products drives competitive advantage - competencies do7 The definitive work on core competencies is:Prahalad, C.K., & Gary Hamel. 1990. The core competence of the corporation. Harvard Business Review,

(May/June): 79-91.

Core Competencies

• Don’t overemphasize today’s products

• Competencies must be developed, they can’t be purchased

• Unlike physical assets, core competencies improve with use

• Identifying core competencies

1. Core competencies must provide potential access to a wide variety of markets

2. Core competencies must make a contribution to the perceived customer benefits of the end product

3. Core competencies must be hard for competitors to imitate.

• Core competencies cannot be separated from the people who embody them

OutcomeEx: Reduced

Downtime

OutcomeEx: Reduced

Downtime

Choosing Activities: “Inside Out” Versus “Outside In”

CustomerVALUE

ActivityService Network

Resource 1

Resource 2

Activity

Service Network

CustomerVALUE

Resource 1

Resource 2

“Inside Out”: Based on Resources Already Controlled

“Outside In”: Begins with Customer Value as Focus --Presumes Necessary Resources can be Obtained or Developed

Time Between

Alternative

A Creative “Outside In” Approach Opens the Door to Develop Multiple Alternatives and/or Unique Combinations of Activities for Delivering Value to Customers. May require additional resources not previously possessed

Activity CSelf Service

Service Network

CustomerVALUE

Resource 1

Resource 2

Resource 3

Resource 4

Resource 5

Resource 6

AlternativeActivity BReduce Mean

Failures

AlternativeOutcome

DowntimeEx: Reduced Activity A

Margin Enhancing (Critical) Activities

Activities that allow a firm to add value (contribute to margin) over the cost of the activities are the critical activities for the firm

Typically each firm is characterized by its choices regarding a few critical activities

A firm must strive to deliver more value from the critical activities or deliver the same value at a lower cost than its competitors

What Is Strategy?*

Strategy is not Operational Effectiveness

Strategy is about:

Understanding Critical Firm Activities

From “What is Strategy?” Michael E. Porter, Harvard Business Review, Nov-Dec, 1996

Recognizing the importance of Strategic Positioning

So….Competitive Strategy is about being different

Unique activities

Unique mix of value…based on: Product or ServiceNicheGeography

What Is Strategy?

Sustainable Strategic Position

requires Trade-offs

You can’t be all things to all people

Creates the need to make choices

Protects against straddlers

Requires Focus and Prioritization

Is essential to strategy

Purposefully limits what a firms does or offers

Strategy is about making trade-offs in how to compete

What Is Strategy?

Fit drives both Competitive Advantage

and Sustainability

You need to understand the opportunity and the ability to deliver

Opportunity is defined by Five Forces analysis

Ability to deliver is defined by Value Chain and VRIO analysis

Strategy is about combining activities and achieving positions that are difficult to imitate

Implies complex combinations of resources and capabilities

May rely on entire systems of activities

What Is Strategy?

Successful Strategies involve:

Defining and communicating the firm’s unique position

MakingTrade-offs

Forging fit among activities

Generic Strategies for the Future

The firm should focus on individual activities rather than a generic strategy for the entire firm

Depending on the nature of the value to the customer (visible or invisible), firms should try to lower costs or differentiate in individual activities. This approach may require additional resources.

Value of the Activity

Visible to the customerInvisible to the customer

Lower costs

Differentiate

Try to reduce cost of activities if it does not impact any visible values

If the outcome detracts from value, then make it invisible or eliminate

If activity adds value, then make it visible

Must provide at least as much value as the main competitors even if it means increased expenses